Racial disparities in mental health outcomes have been widely documented in noninstitutionalized community psychiatric samples, but few studies have specifically examined the effects of race among individuals with the most severe mental illnesses. A sample of 925 individuals hospitalized for severe mental illness was followed for a year after hospital discharge to examine the presence of disparities in mental health outcomes between African American and white individuals diagnosed with a severe psychiatric condition. Results from a series of individual growth curve models indicated that African American individuals with severe mental illness experienced significantly less improvement in global functioning, activation, and anergia symptoms and were less likely to return to work in the year following hospitalization. Racial disparities persisted after adjustment for sociodemographic and diagnostic confounders and were largely consistent across gender, socioeconomic status, and psychiatric diagnosis. Implications for social work research and practice with minorities with severe mental illness are discussed.